heritage policy tools

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Making heritage

happenIncentives and Policy Tools forConserving Our Historic Heritage

National Incentives Taskforcefor the

April 2004


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Disclaimer

This report has been prepared by a joint Taskforce of Commonwealth,State and Territory heritage officials, in

response to a request from the Environment Protection and Heritage Council (EPHC).

Any views expressed or recommendations made in the report are those of the Taskforce,and do not represent

the views or policies of Commonwealth, State,Territory or Local Governments.

This document is available on the website www.ephc.gov.au or from:

National Environment Protection Council Service Corporation

Level 5,81 Flinders Street

ADELAIDE SA 5000

Telephone: (08) 8419 1200

Facsimile: (08) 8224 0912

[email protected]

ISBN 0 642 323 81X

May 2004. Copyright vests in the Environment Protection and Heritage Council. Apart from any use as permitted under

the Copyright Act 1968, no part of this work may be reproduced by any process without prior permission from the

Environment Protection and Heritage Council. Requests and enquiries concerning reproduction and rights should be

addressed to the Executive Officer, NEPC Service Corporation,Level 5, 81 Flinders Street,ADELAIDE SA 5000.


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Section 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.2 Pressures on historic heritage places:the nature of the problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

1.3 Why conserving historic heritage is important . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

1.4 Why we need incentives and policy tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Section 2: Incentives and other policy tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.2 Tax incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52.2.1 Property tax abatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

2.2.2 Income tax rebates or credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

2.2.3 Tax deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.2.4 Other miscellaneous tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

2.3 Grants and loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.3.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

2.3.2 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.4 Planning incentives and other planning instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

2.4.1 Zoning controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

2.4.2 Planning incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

2.4.3 Transfer of development rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

2.5 Heritage agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222.6 Revolving funds and conservation trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

2.7 Encouraging use of heritage properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

2.8 Technical assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

2.9 Labour and volunteers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

2.10 Recognition and promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

2.11 Client and community relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

2.12 Government-to-government assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Section 3: Funding sources and mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2

Section 4: Evaluating the effectiveness of incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 4

4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4.2 Effectiveness studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4.3 The quantity of incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

4.4 Key themes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Section 5: Comparisons and conclusions - the Australian experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9

5.1 Australia compared with the western world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

5.2 Historic heritage compared with natural heritage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Section 6: Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2

End notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Appendices:

Appendix 1 - Local and State tax incentives in North AmericaAppendix 2 - Heritage Revaluation Provisions Australia-wide

Table of contents


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1.1 Background

On 2 May 2002, theEnvironment Protection and

Heritage Council(EPHC), consisting of

Commonwealth,State and Territory environment

and heritage ministers, requested that a taskforce

be established to examine incentives and other

policy tools to promote heritage conservation, and

to develop recommendations on the application

of these tools.

Accordingly, the purpose of this report is to

survey the historic heritage incentives currently

offered in Australia and internationally; compare

them with incentives for nature conservation;

examine their effectiveness or otherwise; and

draw conclusions about potential reforms that

should be considered to support Australias

historic heritage.

Historic heritage is taken to include heritage

buildings,structures, sites and areas. However, in

this report there is an emphasis on historic

buildings. The report does not cover heritage

objects or intangibles such as languages, folklore

and legends.

The Heritage Incentives Taskforce was established

with the following members:

David Conlon (Chair),Heritage South Australia

Ian Baxter, Heritage Council of Western

Australia

Susan Bell, Environment ACT

Meg Switzer, Commonwealth Department of

the Environment and Heritage

Stephen Sutton, Northern Territory Office of

Environment and Heritage

Ray Tonkin,Heritage Victoria

Any views expressed or recommendations made

in the report are those of the Taskforce,and do

not represent the views or policy of

Commonwealth,State,Territory or Local

Governments.

1.2 Pressures on historicheritage places: thenature of the problem

To analyse and implement effective conservation

solutions, it is useful to understand the nature of

the problem and the pressures that face heritage

properties.

Trends in the state of the historic heritage are

best measured in terms of condition, integrity, and

the rate of loss (through demolition).

Condition and integrity

The reportNatural and Cultural Heritage:

Australia State of the Environment 2001

highlighted the fact that there is no

comprehensive information available on the

condition and integrity of Australias historic

heritage.

However the report did include a sample survey

of historic places in the Register of the NationalEstate which found that:

5.6% of places were in poor condition;

8.6% of places had low integrity (ie.the

intactness of the original fabric that gives

heritage value was low);and

6% of places were vacant. 1

1Making Heritage Happen - Incentive and Policy Tools for Conserving Our Historic Heritage

Section One Introduction


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The finding of a 2001 survey by the Heritage

Council of WA, which sampled 56% of registered

places in that state,was that 13% of places were

in At-Risk condition. At-Risk places were either

in Poor Condition,or in Fair Condition butvacant.2

Loss of heritage places

A comprehensive survey of the loss of heritage

places at a national level has not been attempted

in Australia. The State of the Environment report

noted that 54 historic places had been removed

from the Register of the National Estate because

of destruction or loss of values,during the five-

year reporting period. 3

However the Register of the National Estate

represents only a very small part of Australias

historic heritage, the majority being identified in

local heritage lists. For instance, in Victoria alone,

there are over 80,000 places covered by heritage

overlays in local planning schemes.

Some local governments have recorded the rate of

demolition in local State of the Environment

(SOE) reports or in heritage study reviews. For

instance, the City of Orange reports the loss of 5items in the five years to 2002 from the 110

places in the Local Environment Plan. The City of

Fairfield in Sydney reports the loss of 7 places in

the five years to 2002, from 105 places identified

in the Fairfield Heritage Study. In the Town of

Cottesloe in Perth,24 places in the local heritage

inventory were demolished in the seven years

between the compilation of the inventory in 1995

and its review in 2001/02 (24 of 370 places,a rate

of loss of nearly 1% per annum). 4

A pointer to the likelynationaltrend can perhaps

be drawn from an overseas study commissioned

by the Department of Canadian Heritage in 1999,

which found that 22% of Canadas pre-1920s

historic heritage had been demolished in the 29

years since 1970. 5

The precise rate of demolition occurring

nationwide in Australia cannot be stated with

confidence, without comprehensive analysis of

the kind undertaken in the Canadian study, or

without a comprehensive state of theenvironment audit.

However on the basis of partial evidence offered

at the local level, it is possible that the

continuation of current trends could lead to the

loss by 2024 of 10-15% of the heritage places that

are extant in 2004.

Sources of pressure

The State of the Environmentreport identified a

number of factors that contribute to the loss ofhistoric heritage places including:

urban redevelopment pressures;

urban consolidation affecting the heritage

character of older suburbs;

abandonment of rural structures because of

changing technology and new markets or

products;

loss of cultural landscapes through changingrural use patterns;

population losses or gains;

declining public sector budgets;

public building redundancy, especially in rural

areas (eg. railways,post offices, banks,

schools);

information and awareness failures;and

market and policy failures (eg. market failure

occurs where the level of conservation work

undertaken is less than if account was taken

of the full environmental,social and economic

factors).6

2 Making Heritage Happen - Incentive and Policy Tools for Conserving Our Historic Heritage


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1.3 Why conserving historicheritage is important

Australians are becoming more aware of the

importance of conserving our historic heritage.

Heritage places and objects provide us with

cultural and physical links to the past. They help

us understand the broad scope of our past,

enrich peoples experiences and understanding

and reflect the communitys sense of cultural

identity.7

Heritage assets can also contribute to sustainable

economic development and prosperity, by:

providing landmarks that serve as economic

development foci and community

touchstones;

providing one of the most important tourism

drawcards in urban centres and regional areas;

assisting small-scale and short-stay regional

tourism such as local bed and breakfast

businesses, small art and craft galleries and

open garden schemes;

attracting people and investment by

enhancing the amenity or liveabilityof towns

and cities;

creating proportionately more jobs than new

construction and providing better local

expenditure retention;

providing environmental benefits through

reduced demolition waste and reduced

resources required to demolish-and-rebuild.8

Tourism plays an important part in the Australian

economy, and it relies heavily on the continued

sustainability of Australias natural and cultural

heritage assets. In turn, tourism provides owners

and managers of heritage assets with income to

maintain these assets. The EPHC has established a

separate taskforce to consider the issues

surrounding heritage tourism,which has reported

separately in the 2003 report Going Places.

1.4 Why we need incentivesand other policy tools

Heritage listing and heritage protection is

ultimately a public good driven by the broader

community. As such there is a strong expectation

in the community that all levels of government

should accept a significant part of the

responsibility to ensure that places of heritage

value are conserved. That expectation extends

not only to the regulatory side of listing and

protection, but also to financial aid and assistance.

In an environment with limited resources,

regulation may appear attractive because it

appears relatively cost free. Governments can

simply require someone to do something. That

may be the reason that regulation has traditionally

been the predominant conservation tool in some

countries, including Australia.

However, an effective heritage system is founded

on a balance of sticks and carrots. The lack of a

meaningful level of carrots undermines support

from property owners for the system, makes

regulation more difficult, and misses opportunities

for garnering private investment.

Specifically, the purposes of heritage incentives

are to:

ensure that owners are not unduly

disadvantaged by the constraints or extra

expense that the regulatory system may

impose;

leverage private capital investment in

conservation;

generate additional conservation activity than

would otherwise occur;

counteract land use policies or other

government programs that threaten heritage

places; and

ensure that as far as possible a level playing

field exists between restoration work and

new construction.



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2.1 Introduction

This report examines a wide range of incentives

and other policy tools.

The main focus of the report is on Government-

led schemes, incentives and policies at the

Commonwealth,State and Local Government

levels. The report has not attempted to catalogue

every approach that is being employed within

Australia or internationally, but rather it focuses on

the most well-established, effective or innovative

approaches.

The report addresses to a more limited extent,

some of the tools that non-government

organisations and owners of heritage properties

can utilise.

The report examines eleven main tools:

1. Tax incentives

2. Grants and loans

3. Planning incentives and other planning

instruments

4. Heritage agreements

5. Revolving funds and conservation trusts

6. Encouraging use of heritage properties

7. Technical assistance

8. Labour and volunteers

9. Recognition and promotion

10. Client and customer relationships

11. Government-to-government assistance

For ease of presentation, each of these approaches

is discussed individually. However, it should be

recognised that a combination of complementary

tools may produce synergistic outcomes. For

example,a grant or tax incentive scheme will

work more effectively if supported by a technical

advisory service, or may complement a heritage

agreements program.

Separate chapters examine the questions of:

funding sources for heritage incentives and

other tools; and

how to evaluate the effectiveness of heritage

incentives.

While most of the tools discussed are more

applicable to places in private ownership (eg.

taxation benefits), other approaches can equally

be applied to the conservation of public buildings

(eg. grants, volunteer programs, improved client

relationships).

2.2 Tax incentives

Tax incentives generally have one of three

objectives: (a) to reduce the cost of maintenance

or restoration; (b) to reduce the opportunity cost

of retaining a building rather than demolishing-

and-rebuilding;or (c) promoting the flow of

resources to non-profit bodies (in cash or

property).

Section Two Incentives and tools


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Tax incentives fall into four main groups, of which

the first three are the most common:

Property tax abatement schemes;1

Income tax rebates or credits for conservationwork;

Tax deductions for donations to heritage

organisations or funds; and

Other miscellaneous tax benefits.

2.2.1 Property tax abatements

How they work

This approach involves a full or partial reduction,

freezing, or deferment of property taxes or rates.

It can be achieved by adjusting the mill rate (ie.

the tax rate per dollar of assessed value of

property or land), by assessing land value at

current use rather than highest and best use,by

assessments at a set percentage of full value, by

complete exemption, or by deferment. These

forms can be applied for a specified time or

indefinitely.

Access to property tax abatement schemes can be

based on a requirement to undertake

conservation work,or can be an automatic

entitlement for all eligible properties.They are

usually as of right incentives rather than fully

discretionary ones.

Such schemes are widely employed in North

America, and a list of known schemes appears at

Appendix 1, including available details of:

the level of government which offers the

incentive (Federal, State or Local); and

the amount of funds involved.

In the United States, property tax reductions and

freezes include the following:

- In San Antonio, Texas, owners of

commercial properties receive a 100%

reduction on their taxes for five years after

a restoration project,plus a 50% reduction

for a further five years. Owners of

residential properties receive a 100%

reduction for 10 years.

- Abilene Tex as offers an interesting mix

of entitlementand performance-based

tax incentives: a 20% reduction ofproperty taxes indefinitely for all listed

properties; plus an additional reduction of

50% following a restoration project.

- InAlabama, property tax is set at 10% of

the market value, instead of 20% for non-

historic properties.

- Owners in Georgia orFlorida are eligible

for an 8-10 year freeze in taxes following a

restoration project.

- InWashington DC, historic properties

are assessed for rating purposes according

to their actual rather than highest and

bestuse;

- Tax assessors may consider any reduction

in property values attributable to easement

restrictions in New Jersey, Tennesse e

andVi rginia.

- Maine offers reimbursement of property

tax in exchange for an owners agreement

to maintain a property.

Examples


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- In Minnesota, local governments offers

partial or full abatement depending on the

age of the property;partial abatement on

houses over 35 years old and full

abatement for houses over 70 years old(but limited to houses valued under

US$150,000).

InWest Germany, heritage properties are taxed

at 40% of their value,or at 0% in some cases, with

the level of abatement dependent on the cost of

maintenance and the level of public access

provided. In France owners receive a 50% tax

credit for maintenance and restoration

expenditure.

InTurke y, heritage properties are completely

exempted from property taxes.

In the Northern Territory, all owners of

declared heritage places are entitled to rate

rebates - 75% of rates for residential properties

and 25% for commercial properties.

Legislation in most Australian States and

Ter ri to ri es provides for the Revaluation of

heritage listed properties on the basis of actual

use rather than highest and bestuse. This canlead to reduced land tax assessments. A full

summary of arrangements across Australia appears

at Appendix 2.

InVicto ri a andWestern Australia, the state

heritage agency can grant land tax and rate

remissions for places included in the register.

However, the administrative procedures stipulated

in the legislation are complex, and the tool has

only been used in a limited number of cases.

Effectiveness

Property tax abatements are favoured by some

governments internationally because they

generally dont involve positive expenditure,help

to contain growth in outlays, and maintain an

illusion of being costless.2 Tax abatements can be

seen by the public as an overt sign of government

commitment to heritage conservation.

Property tax abatements are effective in offsetting

the direct annual cost of maintaining a heritage

property. However they tend to provide

incremental incentives that dont by themselves

compensate property owners for foregonedevelopment opportunities on sites with high

development potential.

The experience in the United States is that they

are highly effective both in generating additional

conservation activity, and on equity grounds.

Local Governments in Australia have traditionally

been reluctant to offer municipal rate abatements

out of concern for erosion of their revenue base,

and to a lesser extent because of concern at being

seen to play favourites. Similar concerns over

the use of Land Tax incentives have been

expressed at the State Government level in

Australia. However American analysis suggests

that the cost to revenue is substantially offset by

the strong multiplier effect associated with

additional conservation activity.3

The Revaluation incentive is particularly

effective on equity grounds,although mainly in

relation to high-value commercial properties in

central business districts.

2.2.2 Income tax rebates or credits

How they work

This incentive offers income tax credits or rebates

for conservation work performed by tax-paying

individuals or corporations. A tax credit applies a

uniform percentage break to all qualifying

expenditure,typically in the range of 20-30%.

This form of incentive is very common in the

United States,with a long standing Federal

scheme,and also many schemes offered by State

Governments. Unlike their Australian

counterparts, most American states levy income

tax, at a rate around 4-5% of taxable income.


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The US Federal Government offers tax credits

of 20% of expenditure on approved heritage

restoration work. In 2001 the total cost of the

credits was $520 million US ($895 million AUS).

Approximately 18 US State Governments offer

income tax credits of 20-50% of expenditure on

approved restoration work, usually in addition to

the Federal tax credits. If the owners income tax

is too low to allow the credit to be claimed in one

year, the credit can be carried forward for an

extended period (usually up to 10 years). Many

States cap the cost of the tax credits at around $3

million US per annum;however the state of

Missouri budgets $20 to $40 million US per year

for the scheme.

France offers owners a tax credit of 50% for

expenditure on maintenance and improvement,or

a 100% tax credit if the building is open to the

public for a specified number of days each year.

Austria andWest Germany offers 100% credits,

spread over 10 years in both cases.

InAustralia, an income tax rebate scheme, Tax

Incentives for Heritage Conservation, operated

from 1994-1999. The 20% rebate paid to

applicants was capped at a total of $2 million,

thus potentially generating $10 million of

additional conservation works. An approved

applicant had two years to complete the work

and to claim the tax rebate. The scheme was

discontinued partly due to its own lack of

success, and partly as a Commonwealth policy

response to the 1996 report of the NationalCommission of Audit, which argued that tax

expenditures are less transparent and

accountable than direct outlays.

Effectiveness

Income tax rebates are well suited to assisting

owners with the ongoing cost of conserving a

heritage property. By comparison, performance-

basedgrants provide less certainty for owners,

and are better suited to assisting with major

restoration projects that arise intermittently.

The effectiveness of tax credit schemes in the

United States has been well documented and is

discussed further in Section 4. The analysis of

such schemes shows that:

The schemes have been successful in

generating conservation activity that would

not otherwise have occurred.

As a result,Governments offering such

incentives may receive a net gain in tax

revenue.

The US Federal tax scheme experienced a

major decline in its attractiveness as a result of

1987 rule changes that limited the amount of

credit a taxpayer could use in one year to

$7,000, reduced the rebate from 25% to 20%,

and increased the minimum threshold for

project expenditure.4

The effectiveness of the Australian tax rebate

scheme of the 1990s was limited by a number of

factors:

Administration of the scheme was unwieldy,

involving decisions by multiple government

departments, extensive paperwork,and

lengthy waiting periods for applicants.

The scheme was capped at a low level,which

meant that it offered no benefit to large

conservation projects (the Commonwealth

and State heritage officials involved in

designing the scheme recommended a cap of

up to $28 million, but instead it was set by the

Commonwealth Government at only $2

million).5 This also made the scheme a

competitive process.

The scheme did not allow for carrying

forward of the rebate beyond one year, and

Examples


11/61


hence owners with a low annual tax liability

in some cases forfeited part of the value of the

rebate.

Because of concerns for the confidentiality of

tax information, individual success stories

could not be used to promote the scheme.

Consequently, the statistical information available

indicates a very low take-up rate.Nevertheless, the

case for such a scheme still exists, and theReport

of the Built Heritage Conservation Resources

Working Party (1998) recommended its retention

as a fair and efficient incentive scheme.6

Schuster (1997) notes that a system built around

tax-based indirect incentives...is a more certain

one for intended beneficiaries. They can tell

relatively easily if they will qualify to use one or

another tax incentive,and their access to the

incentive is often automatic.7

While theAustralian Tax Incentives for Heritage

Conservation (TIHC) scheme was converted into

an outlays program in 1999 (the Cultural

Heritage Projects Program), the Landcare tax

rebate/deduction scheme was retained until June

2001.The Commonwealth set aside $80 million

for the Landcare scheme, although it was

undersubscribed. The Agtrans Review of the

Landcare Rebate noted the shortcomings of the

scheme,made suggestions for change,but

recommended its retention.8

While the TIHC scheme was replaced by the

Cultural and Heritage Projects Program, the total

level of Commonwealth incentive declined. The

National Estate Grants Program and the TIHC

scheme together provided approximately $6

million in 1995; in 2002 the Cultural Heritage

Projects Program provided $3.6 million.

This report recommends (supported by the

majority of the Taskforce) the revival of the Tax

Incentives for Heritage Conservation scheme,

under arrangements designed to improve its

effectiveness,as follows:

i. The cap on total annual rebates should be set

at not less than $20 million;

ii. Administrative procedures and accountability

checks should be simplified,preferably with

application-assessment delegated fully to the

State heritage agencies;

iii. Applications should be accepted on an

ongoing basis,not limited to once-per-year;

iv. The recipient should be able to carry forward

the rebate over multiple financial years.

The Commonwealth is not supportive of the

reinstatement of the tax rebate scheme,on the

grounds that (a) such schemes still require

application-assessment processes and therefore

may be more efficiently,effectively and

transparently delivered through grant programs,

and (b) grant programs allow taxpayers funds to

be better targeted at heritage conservation

projects that are of highest priority.

2.2.3 Tax deductions

How they work

Tax deductions take two main forms:

(a) A tax concession that allows the value of

donations to be deducted from the taxable

income of donors, thereby increasing the flow

of resources to non-profit historic heritage

organisations; and

(b) A tax concession that allows an owner to

claim an income tax deduction for any

decrease in land value as a result of entering

into a conservation covenant.

Examples from overseas and from nature

conservation in Australia are summarised below,

followed by an overview of the relevant tax law in

Australia.


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In the United States, individual or corporate

property owners can claim as a tax deduction the

reduced value of a property that is the subject of

a preservation easement (essentially the

equivalent of a Heritage Agreement or covenant in

Australia). The pre-and-post easement values must

be assessed by a licensed valuer. This form of

deduction has been extensively used since the

1970s, and is comparable to the tax deduction for

conservation covenants introduced in Australia in

2001 (see below).

In addition, donations of cash or property to non-

profit historic preservation organisations such as

Revolving Funds,qualify for Federal income tax

deductions, and are the subject of considerable

philanthropic giving.

In the United Kingdom, donations of property

to the National Trust, English Heritage or other

non-profit bodies are exempted from inheritance

tax.

In Spain, individuals can claim as a tax deduction,

20% of the value of cash or property donated to aheritage-related foundation or association.

Companies can claim a full deduction of 100% of

the value of a donation.

In Singapore, donations to the National Heritage

Board are tax-deductible. In addition, the Heritage

Central Fund Scheme established in 2002 allows

approved non-profit bodies to open tax-deductible

accounts with the National Heritage Board.

InAustralia, donations to environmental

organisations of property valued at $5,000+ are

tax-deductible. Any taxpayer can claim a donation

(an individual, trust or company). Deductions

may be apportioned over five years so that tax

benefits are not lost when a donors income in a

single year is less than the value of the gift.

Donations must be to an eligible organisation that

appears in the Register of Environmental

Organisations. There were approximately 300

organisations in the Register in June 2003,

comprising corporate bodies, cooperativesocieties, trusts, and unincorporated bodies

established for a public purpose by a

Commonwealth,State or Territory. Statutory

authorities are not eligible if their enabling

legislation provides that its property be given or

transferred to the Crown as the bodys beneficiary

or controller.

In addition, amendments to the tax law in

October 2001 allow an owner to claim an income

tax deduction for anydecrease in land value as aresult of entering into a conservation covenant.

In the United States, where bargain sales of land

to conservation trusts take place, the gap between

full market value and the price paid by the charity

is considered a donation, and is therefore tax

deductible.

Effectiveness

Tax deductions for donations to historic heritage

conservation in Britain and the United States haveproven effective in increasing the flow of

resources (in cash or property) to heritage

organisations, and to the projects that they

undertake. For instance, the National Trust of

England received donations totalling over 3,300

million in 2002/03, and English Heritage received

donations totalling 654 million in the preceding

year.9

The same is true of more recent tax reforms for

nature conservation in Australia,as evidenced bythe success of the revolving funds for nature in

the last five years.

A divergence of view exists in the Taskforce on

the issue of donations togovernmentheritage

funds. The view of the states and territories is

that donations to government funds should be tax

Examples


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deductible,on the grounds that (a) specific

projects are capable of attracting donations; (b)

suitable funds already exist in most states (or if

separate funds are required that could readily be

achieved);and (c) various other governmentactivities and entities already enjoy tax deductible

status, such as museums, libraries,art galleries, and

public hospitals.

The Commonwealth is not supportive of

donations to government funds being tax

deductible,on efficiency and effectiveness

grounds. Environment Australia contends that

providing deductible gift recipient status to

government funds would require a number of

actions, including changes to the Tax Act, theestablishment and administration of separate gift

funds in each jurisdiction (as required under the

Tax Act),and potentially some legislative change

within States and Territories to establish these gift

funds. It is unlikely that the public will make

significant (if any) donations to government

funds, thus calling into question the cost

effectiveness of making the relevant legislative

changes and establishing and administering the

gift funds. Furthermore, where donations are

made to government funds, it may be at the

expense of donations that would otherwise have

been made to non-government organisations.10

Other relevant issues in Australian Ta x

Law

Other relevant issues in Australian tax law include

the following:

The tax deductibility of donations to

organisations in the Register of Cultural

Organisations, specifically excludes historic

heritage. The Register covers arts, literature,

performing arts, crafts and movable cultural

heritage.

The tax deductibility of donations to the

National Trusts in each State and Territory,

under section 30-55 of the Tax Act, does not

rely on the Trust being included in the

Registers of environmental or cultural

organisations. A practice has developed in

some states for the National Trust to conduct

conservation appeals on behalf of otherorganisations for heritage listed churches,

cemeteries and community buildings.11

The Report of the Inquiry into Charitable and

Related Organisations released in June 2001,

recommended among other things that

charitable purposes should include the

advancement of culture, which ... includes the

promotion and fostering of culture and the

care, preservation and protection of the

Australian heritage (Recommendation 13). Inthe Commonwealth Governments Response

to the Inquiry, the Government announced

that it would enact a legislative definition of

charity. Within that definition, charitable

purposes would embrace the advancement of

culture which includes the historic heritage.12

The deductibility of donations for environmental

heritage and moveable heritage is separate to the

definition of charitable purposes in the Tax Act.

However the charities inquiry may haveimplications for the review of deductibility for

historic heritage that is recommended in this

report.

In July 2003 the Federal Treasurer issued the

Charities Bill 2003 as an exposure draft.The

Heritage Chairs and Officials made a submission

to the Board of Taxation, who reported to the

Treasurer on all submissions in December 2003.

2.2.4 Other miscellaneous tax benefits

Stamp duty exemptions

How they work

This approach involves full or partial reduction of

stamp duty on sales of heritage listed properties,

with the aim of encouraging investment in

heritage conservation.


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In the case of New South Wales where stamp duty

on conveyances ranges from 1.25% to 4.5% on

sales of more than $300,000,and 5.5% for sales

greater than $1 million, a 50-100% reduction

would represent a significant saving forpurchasers.

In the United Kingdom, an exemption from duty

when buying or leasing a property or buying

shares applies to:

a charitable body;

English Heritage;and

the Trustees of the National Heritage Memorial

fund.

In the United States, transfer taxes are waived for

transfers to or from Revolving Funds in some

states.

InVicto ri a, transfers from the Trust for Nature

are exempt from Stamp Duty.

SomeAust ralian states have provided stamp duty

exemptions or rebates for purposes other thanconservation, such as the rebate for First Home

Buyers in NSW,Victoria, and WA; or the exemption

for donations to superannuation funds in WA.

Sales tax exemptions

How they work

Some governments exempt or reduce sales tax

payable on goods purchased for heritage

restoration work.

In Nova Scotia, the provincial government

provides a rebate of 53% on sales tax paid on the

purchase of building supplies for heritage

conservation projects.

This option is not applicable in Australia, since

sales taxes were superseded by the Goods and

Services Tax in 2001, and the Commonwealth

Government is committed to retaining an across-

the-board application of the GST.

Accelerated depreciation and bond

issues

How they work

The 1998 Report of the Built Heritage

Conservation Working Party recommended

consideration by government of two incentives:

An increase in the depreciation rate for

heritage-listed buildings to 10% (equivalent to

an effective life of 10 years), compared with

the depreciation rate of office and retail

buildings of 2.5% (40 years) and industrial and

hotel buildings of 4% (25 years). This reform

was also recommended by the Report of the

Working Party to the Planning Ministers in

1986, which proposed an 8% depreciation

rate.13

Approval by the Tax Office of Heritage

Bonds, designed to attract investment into

heritage conservation projects by offering

high rates of return and tax deductions.

In the United States, conservation bonds,

annuities and share issues receive favourable

taxation treatment especially in relation to capital

gains and estate taxes.

InAustralia, Infrastructure Bonds were created in

the 1990s to encourage investment in major

projects such as Melbournes Transurban CityLink,

but were discontinued in 1996. Bonds issues

prior to 1996 were exempted and continue to roll

over.14

Examples

Examples

Examples


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Infrastructure Bonds functioned in the same way

that Heritage Bonds would, save that they

promoted investment in infrastructure projects

rather than heritage conservation projects.

Effectiveness

The Heritage Bonds proposal may be problematic,

as the Infrastructure Bonds program was

discontinued by the Commonwealth in 1996

because of concerns over abuse of the scheme.

The proposal for an increase in the amortisation

rate for heritage buildings may merit further

consideration. It would increase tax deductions

from value added to heritage buildings through

restoration, and complement a tax rebate scheme.

Capital tax exemptions

How they work

Capital tax exemptions take one of two basic

forms:

Exemption from tax payable on assets from a

deceased estate (inheritance tax or other

relevant taxes); and

Exemption from Capital Gains Tax payable on

the lump sum profit arising from an asset re-

sale.

In the United Kingdom, exemption from

Inheritance Tax can be claimed where the transfer

involves qualifying heritage assets, including

historic buildings.Exemption is also available

where qualifying heritage assets are transferred

into an approved trust fund established for

maintenance purposes. Exemptions depend upon

certain undertakings: usually limited public access

(eg. 1 open day per year), and a maintenance

agreement.

InAustralia, gifts of property bequeathed in a

will to an eligible nature-conservation

organisation are exempt from capital gains tax,

under changes legislated in May 2000.

Effectiveness

Of the Miscellaneous tax benefitsoutlined above,

those with the best-established record in

increasing the flow of resources to heritage

organisations, or increasing the level of

conservation activity, are:

Exemptions from stamp duty for sales of

heritage places in specific circumstances;&

Exemptions from inheritance tax payable on

heritage properties.

Australia does not have inheritance taxes;

however the capital gains tax exemption for

properties bequeathed in wills to nature

conservation organisations, could be applied to

historic heritage.

2.3 Grants and loans

Grants schemes,and to a lesser extent loan

schemes,are the most common forms of

assistance provided by governments.

The following chapter discusses the various

options available.

A list of grant and loan schemes known to be

in operation in Australia is shown in Table 1 and 2

below. For comparisons between Australian

and overseas incentive schemes, see Section Five.

Examples


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Table1-COMMONWEALTH,S

TATE&TERRITORYGRANTS&LOAN

S-2

001/2002*

INCENTIVES

C/Wealth

NSW

VIC

QLD

WA

SA

TAS

ACT

NT

'Recurrent'Grants

Cons'nworks(private)

$1,312,000

$382,000

$352,000

$20,000

$349,000

$407,00

0

$250,000

$31,000

$253,0

00

Cons'nworks(public)

$1,959,000

$1,589,000

$4,057,000

$28,000

--

$1,300,000

$39,000

$114,0

00

Survey,planning,

$348,000

$829,000

$750,000

$202,000

$99,000

$169,000

-

advisoryservices

S/Total

$3.6million

$2.8million

$5.2million

$250,000

$448,000

$1,707,000

$250,000

$239,000

$367,0

00

Loans

Directloans

$174,000

--

Subsidisedloans

$250,000

Costofloansubsidies

$7,500

OtherGrants

RuralHotelsProgram

$5million

FederationFundCultural

$70million

&HeritageProjectsPrgm

ENDNOTE

15

16

17

18

19

20

21

22

23

*Thistableprovidesinformationongrantandloanschemes(ie.incentivestothirdparties)providedbyCommonwealth,StateandTerritoryandheritageagencies.

It

doesnotprovideacomprehensiveanalysisofallformsofexpenditureonheritageconservationbygovernmentsornon-governmentorganisations.

TheCommonwealth'sFederationFundCultural&HeritageProjectsProgra

m,andRuralHotelsProgram,areone-offinit

iatives,notongoingprograms.


17/61


Table 2 - LOCAL GOVERNMENT GRANTS & LOANS IN AUSTRALIA - 2001/200224

LOCAL GOVERNMENTS Grants or Rate Av. Grant or Loans per yr Av. loan size Local heritage

OFFERING INCENTIVES r ebates per yr rate rebate inventory

NSWArmidale Dumares $5,000 500

Bankstown City $20,000 48

Bathurst City $12,500

Baulkham Hills Shire $20,000 $2,000 max

Bega Valley Shire $2,000 max 109

Bellingen Shire $10,000 $1,000 max 2

Berrigan Shire $10,000 $1,000 max

Blacktown City $1,000 6

Bland Shire $500 max

Blayney Shire $1,000 max 41

Boowara $500 max

Botany Bay City $1,000 max 96

Bourke Shire $10,000 $3,800 max 25

Brewarrina Shire $7,965 7

Broken Hill City $22,000 $300 $7,000 $1,000 356

Cessnock City $20,000 14

Cobar Shire $15,000 8

Cowra Shire $5,000 5

Deniliquin $10,000 $1,000 max 22

Golburn City $60,000 $2,500 max 2

Greater Taree City $1,000 max 54

Gundagai Shire $10,000

Hastings $10,000 51

Hawkesbury City $28,301

Hay Shire $40,000 825

Jerilderie Shire $10,000 $1,000 max

Kiama Municipal $2,500 max

Ku-ring-gai $10,000 $1,000 max 700

Leeton Shire $2,500 max 34

Lithgow City $5,000 19

Lockhart Shire $2,000 max 12

Maitland City $10,000 300

Mosman Municipal $20,000

Nambucca Shire $10,000 23

Newcastle City $5,000

Orange City $10,000

Parramatta City $20,000 $1,000 max

Port Stephens $1,000 max 97

Rockdale City $15,000 $1,000 max 56

Rylstone Shire $10,000 $1,000 max 10

Sutherland Shire $40,000 400

Tamworth Shire $10,000

Temora Shire $10,000 20

Weddin Shire $10,000 $2,000 max

Wentworth Shire $1,000 max 7

Wingecaribee Shire $1,500 max

Wollongong City $11,200

NSW Heritage office reports

than another 20 local govts

have small grant schemes

of a similar scale.


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VICTORIA

City of Melbourne Yes $50,000 max

City of Greater Geelong $31,000 $5,000 Yes $10,000 max 8,000

City of Manningham $10,000 $1,000 - - 1,200

Moyne Yes $5,000 max 37 + 2precincts

Approx. 8 local govts have

small loan schemes

(Ballarat,Beechworth,etc;

the schemes are generally

inactive)

QUEENSLAND

Townsville $9,000 $3-5,000Mackay Yes

WESTERN AUSTRALIA

City of Kalgoorlie-Boulder $30,000 $4,000 350

Perth $200,000 New scheme 300

WA Local Govt Association

(18 L/Govts) $250,000 pa Not known 5,500

SOUTH AUSTRALIA

City of Adelaide $1,000,000 $20,000 1,950

City of Onkaparinga $15,000 Max $2,000

City of Tea Tree Gully $10,000 Max $2,500

Holdfast $10,000 Max $2,500

Mount Gambier $25,000 $500 160

TASMANIA

Hobart $10,000 Av. $2,400

Table 2 - LOCAL GOVERNMENT GRANTS & LOANS IN AUSTRALIA - 2001/200224 cont...

LOCAL GOVERNMENTS Grants or Rate Av. Grant or Loans per yr Av. loan size Local heritage

OFFERING INCENTIVES r ebates per yr rate rebate inventory


19/61


2.3.1 Grants

Grants schemes are the most common form of

financial assistance provided by governments.

While they take a wide variety of forms, they can

be categorised into three main types:

entitlement grants;

discretionary grants; and

performance grants.

In practice,discretionary grants and performance

grants overlap with each other, and to some

extent performance grants can be considered a

sub-set of discretionary grants.

These broad categories can also be applied to the

tax incentives covered in the previous section.

For instance, tax rebates given in return for

conservation expenditure are performance based

incentives;whereas revaluations are entitlement

incentives.

Entitlement grants

How they work

This type of grant is given to any owner whose

property meets pre-set eligibility criteria. Equal

benefits are paid to all, not discriminating

between those managing their properties to a

high standard and those that simply meet the

criteria.

The Netherlands Department of Conservation

(RDMZ) provides property owners with as-of-right

grants towards maintenance and restoration,with

the contribution varying between 20% and 70% of

cost,dependent on the circumstances. The

scheme is substantially funded at approximately

80 million guilders per year ($64 million AUS). 25

In Salzburg and Graz inAustria, local laws

establish protection zones in the town centres,

within which landlords have an automatic

entitlement to grant assistance from a Historic

Town Centre Preservation Fund.

In Denmark, every owner of a listed building has

an equal right to benefit from the grant system,

with the grants calculated according to the

owners additional expenses over and above the

normal cost of maintenance and repair of non-

listed buildings. A benchmark rate of decay per

year has been developed for the various types of

heritage buildings.Grants are calculated

accordingly, ranging from 20-50% of the full cost

of repair.

Discretionary grants

How they work

Discretionary grants have flexible guidelines and

applicants must compete for selection. Typically, a

grant assessment committee or board determines

the most worthy projects to be funded.

This is probably the most common approach to

grants schemes, at all levels of government.

A small selection of the variety of such schemes

appears below.

MostAustralian State Governm en t he ri ta ge

agencies operate grant schemes for owners of

registered heritage places. In Western Australia

the grant scheme provided $1 million per annum

from 1997-2001 (now reduced), in South Australia

the scheme offered $250,000 per annum,and in

Victoria $300,000 per year for private property

owners. The New South Wales Heritage

Assistance Pro gr am has been more generous,

averaging $1.5 million in recent years.

Examples

Examples


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Many grant schemes are offered in the United

Kingdom. The largest are the Heritage Lottery

Fund which offers 142 million per annum in

England alone, ($395 million AUS), and the

English Heritage grants programs which total40 million per annum ($105 million AUS). In

some rural areas, the Regional Development

Agencies provide grants of 25% of the cost of

converting or rehabilitating a building that is

unused or unsuitable for business use (to a

maximum of 75,000, or $197,000AUS).

Most states in the United States have grant

schemes at the state or local level, or both.

Colorado has the most generous state-based

scheme,with over $63 million in grants providedfrom 1993-2001 (an average of $7 million per

year, with $13 million provided in one year alone,

in 2000). Florida provides $10-$15 million per

year in grants. At the Federal level, the Historic

Preservation Fund makes grants totalling $93

million per annum,although half of these are

grants to the States (see section 2.12 for more

details). Many of these grant schemes are

additional to tax incentives.

In New South Wales, approximately 70 rurallocal governments operate a heritage fund which

provides small grants and/or loans,generally co-

funded by NSW Heritage Office. Total grants are

typically not greater than $10-15,000 per year,

while the total fund is generally less than

$150,000.

The City of Adelaide has operated perhaps the

most well-known local grant scheme in Australia

since the 1980s,offering owners up to $1,000,000

a year in discretionary grants,with the maximumgrant capped at 20% of the cost of a restoration

project.

The Commonwealth Department of the

Environment and Heritage provides grant

funding under its Cultural Heritage Projects

Program,to $3.6 million per annum nationwide.

Funding is available on a competitive basis,mainly

for physical conservation works.

Performance grants

How they work

Performance grants operate with strict criteria

that define the types of conservation project that

will be supported (eg structural repairs, external

restoration).

This approach requires considerable

administrative support to screen applications and

monitor performance,but can be a way of

targeting limited budgets to priority areas.

The City of Roanoke in Virginia offers matching

grants for projects that restore the facade of

dilapidated heritage building and provide

increased employment opportunities for low-to-

middle income earners.

The City of Phoenix in Arizona provides a grants

scheme offering a 50% contribution to the cost of

restoring residential property within historic

districts. The scheme is funded to $1 million US

per year, and applies to projects costing between

$2,000 and $5,000.

Effectiveness (of Grants)

The effectiveness of a grant scheme is in the first

instance dependent on the quantity of grants

provided, in relation to the size of the totalheritage stock and the level of demand.

In Australia, grant schemes provided by

Commonwealth,State and Local Governments are

quite limited,when compared with:


Examples


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(a) the number of places that the schemes target;

(b) the resulting scale of the demand;

(c) the level of government assistance provided in

the natural environment;and

(d) the level of comparable assistance provided

in other countries.

The issue ofoversubscription is discussed in

more detail in section 4.3.

It has been argued that entitlement grants are not

as effective as performance grants, as they are not

targeted,spread the available money thinly, and

may not oblige the recipient to spend the grant

directly on conservation works.

Conversely, entitlement grants have advantages in

giving greater certainty for owners; compensating

all owners for the universal imposts associated

with heritage listing; addressing the burden of

ongoing maintenance as well as intermittent

restoration projects;and avoiding any perceptions

of favouritism,bias or inconsistency in grant

allocations.

Performance grants tend to be best suited toassisting major restoration projects that arise from

time to time (lumpy projects).

2.3.2 Loans

Subsidised finance can be provided to property

owners in the form of:

direct loans; or

loan subsidies.

Direct loans

How they work

Loans are made to the property owner, at a lower

interest rate than would be commercially

available.Funds can be lent on a long-term or

short-term basis, and may be secured against the

property if necessary.

The advantage of direct loans over grants is that

once repaid, the money can be re-used to finance

more loans. However, there is generally a high

level of administrative support and expertise

required to establish and operate such loanschemes. This can be partially overcome where a

partnering financial institution provides the

lending service.

In the United States, numerous states provide

concessional loans from loan funds. New Mexico

has established a revolving fund from which low

interest rate loans are made available to heritageproperty owners. Similarly, Rhode Island

provides low interest loans for restoration or

acquisition of an endangered historic property.

In New South Wales andVicto ria, a number of

local governments provide concessional loans for

heritage conservation work. The City of Broke n

Hill provides small loans of up to $15,000 over

3 years, with an interest rate which is half the

prevailing commercial rate. The City of Greater

Geelong has a similar scheme that has providedover 50 loans since 1990 at an average size of

$5,000.

The Melbourne Restoration Fund is a larger

loan scheme established in 1988 with funding

from the State Government,City of Melbourne

and Bicentennial Program. Loans are repayable

over 5 years for amounts less than $50,000, and 3

years for amounts greater than $50,000. The

interest rate is set at 50% of the prevailing

Commonwealth Bond Rate (between 0% and 3%in recent times).

The City of London in Ontario Canada has

since 1986 provide interest free loans for

conservation works to exteriors of commercial

buildings,to a maximum value of $30,000. Loans

may be amortised for a period up to 10 years, and

can be transferred to a new owner if a property is

sold.


Examples


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Loan subsidies

How they work

Loan subsidies provide essentially the same effect

as direct concessional loans,except that the loan

finance is supplied by a commercial lender, while

the interest rate gap is funded by the heritage

organisation.

TheVictorian Her itage Council offers an

option for assistance in the form of subsidised

interest payments to owners who take out

commercial loans for conservation works.The

interest subsidy is paid to the property owner in

the form of a grant, equivalent to approximately

3% of the interest rate.

TheWA Local Government Associat ion in

partnership with 18 local governments, the

Heritage Council of WA and Statewest Credit

Society, established a loan subsidy scheme in

2003. Funds are lent by the Credit Society to

approved borrowers for conservation works, at a

rate of 3% below the prevailing market rate, inamounts up to $50,000. The Credit Society

collects the cost of the interest gap from the

Local Government Association/Heritage Council

deposit. The scheme allows for a choice of

personal loans, long-term secured personal loans

or mortgage-based loans.

In the City of Roanoke in Virginia USA,a loan

subsidy of 2% is provided for commercial loans of

up to $100,000, with a maximum repayment term

of seven years. The scheme was established in1989 as a partnership between the City,

Downtown Roanoke Preservation Inc., the

Roanoke Valley Preservation Foundation and local

commercial lenders.

In the County of Cuyohago in Cleveland Ohio,

the Heritage Loan Program offers subsidised home

improvement loans through a local bank,

KeyBank. The low rate of 3.5% is made possible

by a lump sum deposited by the county, whichaccrues interest and pays off some of the interest

on funds lent to approved borrowers. Between

2001 and 2004 the scheme made over 100 loans

valued at over $3.6 million, in amounts ranging

from $3,000 to $150,000.

Effectiveness (Loans)

The effectiveness of a loan scheme,like a grant

scheme, is in the first instance dependant on the

quantity of loans or loan subsidies. Most loan

incentive schemes provided in Australia have been

limited by the very small amount of funds

available.

Nevertheless, loans and loan subsidies can be

useful tools in leveraging increased private

investment. Loan subsidies tend to involve

smaller recurrent outlays than grant schemes,

while direct loan schemes tend to require a larger

capital base.

The advantage of the loansubsidy approach overloans made direct by a heritage organisation itself

is that (a) much of the administrative cost falls to

the partnering financial institution; and (b) no

capital is required to be set aside (with the cost of

the subsidies met on a recurrent basis).

2.4 Planning incentives andother planninginstruments

Local Governments and other planning authorities

have a pivotal role to play in promoting historic

heritage conservation, as the majority of Australias

heritage places and areas are listed and protected

at a local level.


Examples


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The local planning scheme is a powerful tool that

can promote conservation,or alternatively act as a

major disincentive, through:

Zoning control;

Planning incentives; and

Transfer of development rights.

2.4.1 Zoning controls

How they work

High-density zonings and plot ratios directly

undermine the goal of conserving heritage

buildings on the land, a common issue

in business districts and some inner-urbanresidential districts. The issue became very

topical in Melbourne in the 1990s, as illustrated

by the formation of the Save our Suburbs lobby

group.26

Local Governments and other planning authorities

can promote conservation of heritage places by

ensuring that incompatible zonings of this kind

are minimised.

Zoning controls are generally applied over

extended urban areas,but spot zonings are

employed in some jurisdictions.

The City of Swan inWeste rn Australia reduced

the residential zoning from R20 (20 dwelling units

per hectare) to R10 throughout the suburb of

Guildford, to protect the houses in the Guildford

Conservation Area. The zoning reduction was

effected in 1991 and has proven successful in

promoting retention of existing housing stock,

together with a high level of refurbishment.

Property values have performed strongly over the

past decade.

The City of Sydney Local Environment Plan

provides that for places in the Heritage List, the

maximum floor space ratio is the floor space ratio

of the existing buildings on the site, save that

vacant land can be improved with new

construction. 27

The City of New Yorkundertook one of the

worlds largest downzonings in 1989, in response

to concern in the citys low density residential

areas about incompatible high-density infill

developments,often with a boxydesign. A

comprehensive zoning amendment reduced the

allowable floor space area, eliminating the

incentive to build to the maximum density;

encouraged contextual new development by

introducing height limits;provided incentives for

attic conversions (creating extra space in existinghouses); and created six new low-density zones.

The City of Roanoke inVi rginia operated until

the late 1980s with a 1960s-era zoning ordinance

that allowed for high densities in residential

heritage areas; industrial and commercial uses in

residential areas;and raised the minimum lot size

above the prevailing size of older lots. In 1988

the City introduced a new zoning ordinance with

conservation objectives, that reduced densities in

residential areas, adjusted minimum lot sizes, andestablished new historic districts with design

standards. The already-strong central district

heritage provisions were augmented with

incentives for inner-city residential conversions,

and reduced height limits in some areas.

2.4.2 Planning incentives

How they work

Planning authorities can also assist by relaxing

planning provisions where those provisions mayact as a disincentive for conservation. This is

particularly the case for commercial properties.

Off-street parking or open space requirements

and building code provisions may discourage the

conservation of a heritage building,particularly

where heritage properties are being restored for


Examples


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new uses.In such cases, flexibility with parking

and building requirements is needed, while

ensuring that health and safety is not

compromised.

In New South Wales, if a property is listed in a

local environment plan,the owner may be

entitled to parking,building site ratio and land use

concessions.28

TheVictoria Planning Provi si on s allow for

otherwise non-complying uses to be permitted in

developments that involve conservation of

heritage places.29

In South Australia under theDevelopment Act

1993, Councils have the ability to relax planning

and building requirements to encourage use or

conservation of a heritage site. This could include

relaxing parking requirements, allowing a use that

would not ordinarily be permitted, or allowing

variation to the usual safety and/or disability

requirements. However, the provision is under-

utilised.

An example of planning incentives in action is the

Coronado Hotel in Claremont, Western

Australia. A vacant former hotel building in Art

Deco style, acquired for demolition and

redevelopment as a car-yard site, was restored and

adapted as a medical suite. Local planning

scheme requirements were varied to allow

changes of use and a density bonus, such that the

vacant land at the rear was subdivided for the

construction of residential units. The

development provided a sound economic return

for the owner as well as a conservation outcome.

2.4.3 Transfer of development rights

How they work

Planning authorities can provide an incentive for

heritage conservation through transferable

development rights (TDR). An owner of an

historic property may sell unused development

rights to a developer of another site. Subject to

other planning requirements, this may enable the

developer to construct a larger building on therecipient site than would normally be allowed.

The owner of the historic property may use part

or all of the proceeds to pay for repairs and

maintenance.

The City of Sydney operates the Heritage Floor

Space (HFS) scheme. Under the HFS,an owner ofa heritage property may be awarded an amount of

HFS by conserving the property. Once all

conservation works are completed to the

councils satisfaction, the HFS can then be sold or

exchanged to enable additional floor space to be

built in a new development. Between 1990 and

2001, around 78 sales of HFS took place under the

scheme accounting for 119,000m2. Sale prices

varied, but averaged around $608 per square

metre in 2000 and $450 per square metre in

2001.30

Ade laide Cit y Council operates a Transferable

Floor Area program. Eleven transactions were

approved between 1988 and 1993,with none

since. The Adelaide CBD is experiencing an

economic downturn with a surplus of office

space, and hence there is no demand for heritage

floor space transfers. The Adelaide City Council is

now considering an alternate approach using

transferable floor area as a means of obtaining

other planning dispensations.

Effectiveness

The effectiveness of TDR schemes depends on the

presence of a buoyant market for development

rights, usually in the central business district of

large cities. TDR schemes can be undermined


Examples

Examples


25/61

where the planning provisions for building

density, height limits and bonuses are too

generous. Sydney is the only capital city in

Australia where TDR has proven a useful incentive

over an extended period of time.

2.5 Heritage agreements

How they work

A heritage agreement is a legally-binding contract

intended to ensure the long-term conservation of

a heritage place. The agreements are generally

signed in perpetuity and are therefore binding on

current and future owners. The agreement will

set out approaches to restoring and/or managing

the property, and may provide the owner withaccess to incentives such as rate remissions, land

tax reductions,grants or planning concessions.

(i) The Heritage Council ofWeste rn Australia

operates a heritage agreement scheme with

around forty-six agreements having been

executed,with a similar number currentlyunder negotiation. Property disposal by the

Western Australian Government is one of the

main sources of heritage agreements such as

those for the Claremont Fire Station,

Geraldton Railway Station and Victoria Park

Police Station.

(ii) The Heritage Act ofSouth Australia

provides for heritage agreements,with six

agreements in place. In most cases the

heritage agreements have been successful.However, in one case the conditions of the

heritage agreement have not been met and

the property has fallen into disrepair.

Although heritage agreements are legally

enforceable, legal action has not been taken

because of the potential costs and negative

publicity. This highlights one of the potential

shortcomings with such agreements.

(iii) The equivalent of Heritage Agreements is

frequently used in the United States, in the

form of preservation easements. The

easements are authorised under state historic

preservation laws,and may be made in

favour of state government preservation

agencies,or a variety of non-profit bodies.

They give rise to tax benefits, in cases where

the value of the property falls as a result of

the easement. These may include income tax

deductions, lower property taxes and

reduced inheritance taxes.

Effectiveness

Heritage agreements are a potentially useful tool

to encourage,as their name implies,conservation

by agreement. Agreements can be a useful

mechanism for providing certainty for property

owners, and for contracting an exchange of

obligations and incentives. However they can

require significant resources to administer,

monitor and enforce.

Agreements are negotiated within eachjurisdiction and as such,Commonwealth,State,

Territory and Local Governments should assess if

a heritage agreement program is appropriate for

their circumstances.

2.6 Revolving Funds andConservation Trusts

How they work

Revolving funds are a successful way of

encouraging conservation of historic heritage

properties in the United States and the United

Kingdom. A revolving fund is a pool of capital

created and reserved for a specific activity,such as

historic preservation. The capital is used to

either:


Examples


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acquire (by donation or purchase),safeguard,

and re-sell historic properties with a

conservation covenant attached; and/or

lend to individuals or organisations to buy,

restore and protect historic properties.

The monies from the sale or repayment of the

loan are returned to the fund to be reused for

similar activities, hence the term revolving. The

acquisition and re-sale approach is the most

common form of fund.

A revolving fund presents two main challenges.

Firstly, an initial capital injection is required to get

the scheme up and running. This can be obtained

through government funding (either from generalrevenue or other sources such as lotteries, bond

issues etc);donations or bequests (cash or

property);and fund-raising or borrowings. The

second challenge is that management of a

revolving fund needs considerable expertise,

including real estate, marketing,finance and

heritage expertise.

The tax deductible status of donations to such

funds is important to their viability in Britain and

the USA, and may also be important for any similarschemes established in Australia in the future.

The Preservation North Carolina (PNC)

Revolving Fund is one highly successful example

of the approximately 90 funds in the United

States.

PNC acquires endangered historic properties

through an option to buy, by donation or by

outright purchase, and then finds purchasers

willing and able to rehabilitate the properties.

The placement of covenants and other restrictions

on properties that aresoldensures restoration

and ongoing conservation of properties.

PNCs role is to take-on troubled properties that

many developers or real estate agents are not

willing to tackle. PNC is also able to reach a

broader market than most local real estate agents,

through its connections with prospective ownerswith a heritage interest. Nearly 500 properties

have been handled through the fund, totalling

about US $100 million in value.

The Historic Landmarks Foundation of

Indiana (HLFI) runs a similar acquisition and re-

sale scheme as PNC,and also operates a statewide

revolving loan fund. The HLFI makes low interest

loans to individuals and organisations to purchase

historic buildings that are under threat.

Repayment of the loan is made once the propertyhas been restored and re-sold.

In the United Kingdom around 170 Building

Preservation Trusts exist,having become

widespread in the 1970s. They range from very

small local organisations,to much larger

organisations operating across a local

government, region or even nationally. One of

their main sources of funds is the Architectural

Heritage Fund which is an independent national

charity first established in 1976 with anendowment fund of 1 million. This is itself a

form of revolving fund,and it has now grown to

9 million. Between 1976 and 1997 it was used

to make loans to Preservation Trusts totalling 23

million, for 337 projects.

Centralised support to the trusts is provided by

the Architectural Heritage Fund and the UK

Association of Preservation Trusts, in the form of

finance, advice, networking and advocacy.

Other models for revolving funds can be found in

the funds established inAustralia to purchase

land with special conservation significance, such

as theTrust for Nature inVicto ria and Nature

Conservation Trust ofNew South Wales.

Covenants are employed to ensure the future

sustainable use of the land, before it is resold to

sympathetic individuals.


Examples


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The Federal Government has contributed to

establishment of several nature-conservation funds

and they now exist in all Australian States.

In New Zealand, the Dunedin Railway Station

was acquired by the City of Dunedin in 1994.

Restoration works were undertaken 1996-98, and

today the station is home to a restaurant, the

Sports Hall of Fame,and the Taieri Gorge Railway,

which runs daily tourist trains. A Foundation has

been formed to assist in the maintenance and

administration of the station.

Effectiveness

The effectiveness of revolving funds is

demonstrated by their widespread operation inBritain and the United States,and more recently in

Australia for nature conservation.

Their strength lies in fulfilling a role that does not

always sit comfortably with private enterprise or

with government heritage agencies. Revolving

funds take a number of different forms according

to the circumstances of the heritage market they

operate in. Their flexibility allows them to

operate either (a) in co-operation with

government agencies from outside;or (b) in aminority of cases,within government.

2.7 Encouraging use ofheritage properties

How it works

One of the problems facing historic buildings is

their deterioration through non-use. Historic

heritage buildings are more likely to be well

maintained if they are occupied. Of the

unoccupied heritage buildings in Australia, 39%

have been found to be in poor external

condition.31

The term adaptive re-use describes a heritage

building previously used for another purpose

being refurbished and converted to another use,

without compromising its heritage qualities.32

New uses can include commercial, residential or

community uses.

Planning authorities can encourage adaptive re-

use of historic properties through various

mechanisms (eg. zoning flexibility, relaxation of

building code requirements, rate and land tax

discounts, financial assistance for conservationworks, transferable development rights etc).

However, it should be recognised that adaptive re-

use is not always the appropriate answer. There

are historic places where adaptation is not

possible and an owners personal objectives for a

property cannot be achieved without

unacceptable interference with historic fabric.

Furthermore, there are community attitudes to be

considered, with some community members

objecting to major adaptations of changes of use,particularly in residential areas.

The Heritage Canada Foundation examined the

environmental and financial implications of

restoring and using existing buildings, compared

with demolition-and-rebuild. The Foundation

argues that by conserving existing buildings,

demolition waste is reduced, extraction of new

materials from the environment is reduced, and

the embodied energy within an existing structure

is conserved.35

It is estimated that it takes around 30 years for a

new buildingto realise energy savings when

compared with the option of renovating an older

building.36

Government policies and decision-making can

encourage re-use of existing buildings through:

environmental impact assessment processes

that require developers to prove that an

historic building cannot be adapted to n

heritage policy tools

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